When will the political class realise that govt freebies offer no lasting solution?

Storage infrastructure and setting up processing facilities for our farm products are major issues and need immediate attention of policymakers to accelerate agricultural growth, says former power minister and MP, Suresh P Prabhu LACK of adequate infrastructure in the hinterland and poor connectivity are major reasons behind slow agricultural growth. Better communication infrastructure is urgently required to maximise benefits of scientific innovation in enhancing farm produce. Since there is a limit to expanding the farm land, I strongly believe that there is no alternative but to put together a credible agriculture infrastructure to meet the rising demand in India for foodgrains and other agri-products and also make decisive inroads into the external markets. Access to markets Beginning with physical road connectivity between the urban consumption markets to farmlands, setting up storage facilities to processing facilities for our farm products is one big issue that needs to be tackled by the policymakers in the country. Very often, I have witnessed heated debates in the Parliament on farmers' issues. Inadequate or lack of farm infrastructure is not limited to just India. It is a phenomenon in the entire South Asian region. Massive investments in building this infrastructure in agriculture and related farm-based industries are the only answer as we make efforts to maximise our productivity from the farmlands. Scientific research and technological innovations would make our investments more productive. Billions of dollars need to be set aside for laying rural roads, setting up cold storage, post-harvest processing units, quality and affordable inputs like seeds, fertilisers and water apart from undertaking massive diversification into horticulture, floriculture and allied areas like livestock, poultry development. Insulating Indian agriculture from vagaries of weather is another big challenge as the infrastructure for water storage, smooth flow up to farm-gate apart from ensuring judicious use needs emphatic focus. Only then the double-digit GDP growth envisaged during next five years would be possible. Common concern Farm infrastructure development assumes a lot of significance as the South Asian region led by India is home to 35% of the world's hungry and 40% of the world's poor. About 70% of these people belong to India. The country's borders with other South Asian countries are often porous for flow of agricultural inputs, products and human resources, but its formal trade, particularly its import with its neighbours, is not as intense. Authentic estimates corroborated by FAO figures project that the country's food production will exceed human food demand and sizeable surpluses of cereals, fruits and vegetables, potatoes and milk will be available, which will help strengthen the proposed South Asian Food Bank once the infrastructure bottlenecks are sorted out. As stated earlier, agricultural growth in recent years has thrown new sectors and regions into prominence. Livestock, fisheries, horticulture, specialty enterprises (spices, medicinal, aromatic, organic) and value-added products illustrate this trend. Market-driven diversification, emphasising the role of the private sector, in a global perspective, has become the new paradigm driving future agricultural growth. Alternative instruments and approaches are evolving to transform agriculture and a very important part of this

Loan waiver for farmers is a good beginning M K Venu A former bureaucrat who had worked with finance minister P Chidambaram in 1997 summed up the 2008-09 Budget aptly in the words of Edmund Burke: "Mere parsimony is not economy. Expenses and great expenses may be an essential part in true economy'. The bureaucrat in question, former revenue secretary N K Singh, had then designed one of the most liberal tax amnesty schemes for the urban rich with a view to mainstreaming sources of black money generation. The amnesty programme had later prompted even the Supreme Court to comment that such schemes must not become regular practice. Those were difficult times when a prolonged growth slump in much of Asia had led to sluggish revenue collections year after year. Budget targets were rarely met, if at all. Consequently, the government had to resort to amnesty schemes, in desperation, to collect more revenues. Things have dramatically changed in recent years. Asia is fast becoming the engine of growth, and India is a big part of the story. The government's revenues have soared from about Rs 2,54,000 crore in 2003-04 to Rs 5,85,000 crore in 2007-08, more than doubling in four years. With its coffers overflowing, the UPA government has chosen to embark on a "great expenses' programme. And why not? If you could give amnesty to the rich in difficult times, why not amnesty to the poor, distressed farmers when the coffers are full up? The Rs 60,000 crore farm loan waiver may have some design flaws, but no one today should quarrel with the sentiment that agriculture, and the small farmer, do need a leg-up. Clearly, the distress in the farm sector in recent years has created an adverse political climate for the UPA, which has been a bit shy of selling more aggressively the unprecedented GDP growth India has seen in the past five years. It is obvious that you cannot sell high GDP growth and bulging forex reserves in large parts of rural India which are in distress. This had also become a cause of persistent friction between the Congress and the Left within the UPA alliance. All this while, it would appear, it is this political tension which had resulted in the growing communication gap between the Congress and the Left. This may have had its spillover effect even on the nuclear deal. The Left would seem to have been somewhat assuaged by the Budget proposals. The CPM general secretary Prakash Karat has for the first time welcomed the farm and social sector programmes announced by the finance minister. This may signal a temporary thaw in the relations between the Congress and CPM. There is talk that the nuclear deal may also get revived, and the Left may not do any more than make some routine noises over it. The larger issue is one of creating a conducive atmosphere in the political economy to build a consensus for further reforms that are critical for India's economy to sustain a 9 per cent growth for the next five years. The massive farm loan waiver and higher spending in social sector programmes must be appropriately used now to bring down the political opposition to further reforms which are important to propel India to the next level in the globalisation sweepstakes. The Budget in some ways has signalled a New Deal, in which every section of society has benefited, whether it's the urban middle class or the rural poor. But these benefits must now be accompanied with some obligation to work towards a common goal. The one common objective, with which the CPM must have no quarrel, is promoting higher levels of industrialisation. The CPM has also formally recorded in its party document that rapid industrialisation is necessary and there is an urgent need to move people from low yield agriculture to industry. Prime Minister Manmohan Singh too has been placing repeated emphasis on this. The only caution that needs to be exercised is this process must be conducted in a democratic, bottom-up fashion. This was the prime lesson of Nandigram and Singur. The farm loan waiver must be seen as a purely temporary relief and there must be some programme by which farm families locked in low-yielding, suboptimal farm activity are moved to non-farm sectors. After one loan waiver, there is no point in their getting into another loan to do unremunerative agriculture. This would be a recipe for future fiscal disasters. Some permanent institutional arrangement must be designed by the Centre and states together to ensure that inherently remunerative farm activity gets a boost with technical, marketing and financial support. The other farm families must be encouraged through new skill development programmes to move to the manufacturing sector. This needs to be done in a focused manner. The Left Front government in West Bengal has designed an elaborate scheme, after the farmer protests in Nandigram, which seeks to handhold farm families for years after their shift to manufacturing townships built on their land. If done democratically, this is the only way to design a long-term solution to the problems of India's farm sector. A rapidly globalising economy just cannot afford 60 per cent of its population in agriculture sharing less than 20 per cent of the national income. This will remain the biggest point of tension in our political economy. The massive farm loan waiver in the Budget only addresses the symptom. Much more needs to be done to address the root cause. The Rs 60,000 crore loan waiver, at least, brings the whole issue to the centre stage. That is clearly a plus.

Holding down inflation and interest rates, energising the production function, pushing investments, saving livelihoods, and raising incomes and consumption became the principal objectives of the Budget. The waiver of farm loans is a means to the accomplishment of these goals. G. Ramachandran First things ought to come first. There is an exaggerated view that the waiver of farm loans is senseless and indefensible. The waiver has been criticised on the grounds that it would vitiate the credit culture and exacerbate moral hazard in banking. The critics have no such views when commercial and industrial loans remain unpaid or are waived and written off. The waiver of farm loans is a wholly sensible and defensible decision. The waiver at its worst estimate is expected to cost the exchequer a big sum of Rs 60,000 crore. But it will most likely trigger an increase in gross domestic product (GDP) of over Rs 3,72,000 crore over the next three years. The exchequer will earn at least Rs 44,000 crore if the tax-to-GDP ratio is 12 per cent. The nominal net loss could at worst be Rs 16,000 crore. But there may be no loss at all. The loss could turn into a sizeable profit. There are three reasons for this optimism. First, the loss to the exchequer would be lower when the other robust stimuli to growth act upon the economy. Second, the waiver would break the logjam in the fallow farmlands. It will put crops back on cultivable lands that have remained fallow. A spurt in output will kill inflation. Third, lower inflation will keep interest rates low. Nonperforming assets of banks will rebound smartly. Therefore, law-abiding taxpayers and conscientious borrowers that repay loans have nothing to fear. Smartly managerial The Finance Minister has acquired a reputation for smart and conscientious fiscal management since 2006. He has managed India's fat fixed costs of running government pragmatically. He has outrun the beastly costs by taking a managerial view of tax revenues. He has stimulated tax inflows by lowering the unit excise duty rates. He has raised the threshold of the service tax. The raising of the personal tax threshold level and the slabs expands incomes that can be allocated to consumption. It expands the size of the indirect tax market as a result. Yet, it ensures that the good times of ordinary people will continue. The cut in excise duties applicable to many consumption goods and consumer durables deserves special attention. Compliant and conscientious The boost to consumption may appear scandalous. But the Finance Minister has stayed steadfastly on course to meet the requirements of the Fiscal Responsibility and Budget Management Act (FRBMA). Ernst & Young, a global accounting confirm, has aptly commented that India has

A. Vaidyanathan Loan waivers are at best temporary palliatives to the problems facing rural India. Regrettably, the powers that be and the powers that want to be have rarely been willing to confront the difficult and complex problems. The decision to waive farm loans on an unprecedented scale announced in the latest Budget has attracted widespread comment. Almost all political parties have welcomed the move. In fact, most of them were vociferously clamouring for such a measure to relieve the farm sector from a "crushing' burden of debt. The Budget speech has announced the decision to waive farm loans and also estimated the cost (Rs. 60,000 crore) that government has to bear. It does not spel l out the basis of the estimate nor of the institutions, loan categories, and class of borrowers that will be covered by the scheme. Several aspects need to be clarified: 1. By definition, the scheme can apply only to those who have outstanding loans with institutions. Nearly three-fourths of all rural households and 60 per cent of farm households report that they do not have any outstanding debt. All households with outstanding debt may not have outstanding institutional debt. Thus the large majority of even farmers will not benefit from the waiver. If only farmer loans are eligible, the proportion of beneficiaries will be even smaller. 2. Both access to institutional credit and the proportion of outstanding debt are skewed in favour of larger farms. Cultivator households with less than 2 hectares account for 85 per cent of all farm households; and report a lower incidence of debt (46 per cent) and of outstanding debt (30 per cent) than the overall average. 3. Institutional loans include direct lending (to meet needs production as well as consumption) and "indirect lending' for allied activities (such as input distribution, trading, transport and processing of farm produce). The latter comprise about half of outstanding loans of cooperatives; 55 per cent in regional rural banks; and a little under half in scheduled commercial banks. There is hardly any justification for waivers on indirect loans. 4. The magnitude of outstanding debt of rural households, going by National Sample Survey (NSS) data, is less than outstanding debt reported by the institutions in the cooperatives and substantially so in regional rural banks. Since both are intended to lend mostly in rural areas, this difference suggests that they also carry a sizeable portfolio of non-household, non-rural loans. 5. The basis of the estimate that the waiver will cost Rs 60, 000 crore is far from clear. There is good reason to believe that a generalised waiver of all overdues will benefit non-rural borrowers to a considerable extent; that the large majority of rural households, including those in the below 2 hectares category will not benefit; and that the magnitude of benefit accruing to them will be considerably less than Rs.60, 000 crore. Benefits in rural areas will accrue to a rather small fraction of households and the magnitude of relief to the beneficiaries is likely to be considerably less than the cited figure. Larger adverse effects These considerations argue for a close second look at the rationale, scope, and intent of the scheme. But it is also necessary to warn the public of the larger adverse effects of waivers on the rural credit system. Supporters of the scheme argue that this one time relief is a necessary measure to address the current agrarian crisis and that it would enable farmers to restart on a clean state. But this has been said every time in the past when such waivers were announced. Experience shows that waivers encouraged borrowers to presume that they can sooner or later get away without repaying loans. It reinforces the culture of wilful default, which has resulted in huge overdues and defaults in all segments of organised financial institutions. The deterioration in the cooperative credit system is, in large measure, due to the conscious state policy of interference in the grant and recovery of loans. Cooperatives have by far the greatest reach in terms of accessibility, number of borrowers, and delivery of credit to the rural population. Concerned by their near collapse, the Central government set up a task force to suggest ways to arrest the trend and revive them. The task force suggested radical changes in the legal and institutional framework essential to enable and induce cooperatives to function as autonomous and self-regulating entities. It emphasised the need to eliminate government interference in grant of loans, recovery processes, and waiving of dues from borrowers. Against spirit of reforms The Central government accepted the recommendations. Extensive consultations with States led to a political consensus to accept and implement the reform package. The Central government has committed to provide around Rs. 18,000 crore to clear accumulated losses over a period of time and linked to actual fulfilment of specified conditions. Most States have since given their formal commitment to this effect and agreed to abide by the conditions for availing of Central financial assistance. Supervised implementation is under way and has made significant progress in several States. This programme thus already covers a significant part of what is being attempted in the current waiver scheme. It is ironical that the decision to go for a general waiver comes even as the above reform programme is under way. It obviously goes against the central thrust and spirit of the reform programme. Since the proposed general waiver is wholly underwritten and funded by the Centre, the need for the kind of restructuring and conditionality attached to central assistance is likely to be questioned. Doubts will be raised and pressures will build to dilute or even to override the programme. It is very important that the government clarifies its position on the status of the current reform programme and how such pressures can be contained so that apprehensions about the prospect of much-needed institution reform in cooperative credit institutions are to be allayed. Loan waivers are at best temporary palliatives to the problems facing rural India. Significant and sustained improvement in the welfare of the rural population is not possible without a faster pace of growth in the rural economy and an improved quality of education and health services. Increased public spending will not achieve this. It is essential to address deeper problems rooted in the overexploitation and degradation of land and water; government policies that encourage wasteful use of resources; the inefficiency of public systems responsible for implementing programmes, regulating the use of common service facilities, and ensuring quality infrastructural and support services. Regrettably, the powers that be and powers that want to be have rarely been willing to confront and address these difficult and complex problems. The chances that their attitudes will change are far less in the current state of intense and contentious competitive politics. That does not augur well for the future of rural India. (Dr. A. Vaidyanathan, a development economist, is Honorary Fellow of the Centre for Development Studies, Thiruvananthapuram.)

Hitting out at the Bharatiya Janata Party, Prime Minister Manmohan Singh on Wednesday blamed the previous regime for the agrarian crisis and inflation, and said the UPA government's "unprecedented' initiative to waive farmers' loans was to meet the "unpaid distress bill' left behind by the NDA government. Replying to the discussion in the Lok Sabha on the motion of thanks to the President's address, he said: "We have done nothing more than pick up the unpaid distress bill, which the NDA government had left behind.' It was the distress of the peasantry that brought the United Progressive Alliance to power, while the NDA was talking of

Prime Minister Manmohan Singh today claimed the political credit for making a speech that not only led to a Bharatiya Janata Party (BJP) walkout from the Lok Sabha but earned him applause from the Left parties. Days after the government declared it hadn't given up on the Indo-US civil nuclear agreement despite the Left's staunch opposition to it, and Congress President Sonia Gandhi announcing at a party rally in Tripura that the government was not in power because of any favours shown by the Left, the political message of the PM's speech today was: opposition to the BJP was not the Left parties' prerogative. In his speech in reply to the President's address to the joint sitting of Parliament, Singh charged the Opposition with ruining the lives of farmers and giving in to terrorist pressures when it was in power until 2004. Rejecting Opposition charge that the farm loan waiver was announced with an eye on elections, Singh said it was a historic initiative to meet the "unpaid distress bill' left behind by the erstwhile NDA government. "Doubts have been raised about the resources required for this write-off,' he said, referring to questions raised by Leader of Opposition L K Advani and other members asking the government how it could provide the whopping Rs 60,000 crore towards waiver of bank loans to small and marginal farmers. "Let me remind the Leader of the Opposition that what we have done is nothing more than picking up the unpaid distress bill which the NDA government left behind,' Singh said. If bankruptcy is permissible form of business outcome in industry, what is irrational about this waiver, he asked. "It will allow a fresh flow of institutional credit to farmers. It will clean up banks' balance sheets. It will stimulate economic activity in rural areas,' he said. Singh assured the House that the debt relief will be a simple exercise which will be completed by June-end. "It will not be a long drawn affair,' he said. Singh named Opposition leader L K Advani in his speech, leading to a walkout by the Bharatiya Janata Party (BJP) and its allies.

Prior to announcing the Rs 60,000-crore farm loan waiver package, the finance ministry had toyed with the idea of setting up an Agriculture Credit Guarantee Corporation with a corpus of around Rs 5,000 crore to deal with bad loans. The entity would have insured lenders against borrower defaults with banks making less provisioning for such loans and continuing to offer farm loans. However, the plan was dropped after the amount of the waiver and relief package rose to a massive Rs 60,000 crore. "We then thought of giving direct subsidies to farmers as there will be no leakage in this scheme and the benefits will go directly to farmers,' said a government official. Cooperative banks account for Rs 37,000 crore or about 61 per cent of the Rs 60,000-crore package announced in the Budget. Regional rural banks and scheduled commercial banks account for Rs 12,000 crore and Rs 11,000 crore, respectively. The details of the farm package are likely to be finalised by March 25. As the government will implement this package over a period of three financial years, it may make a provision of up to Rs 25,000 crore in 2008-09. Part of the financial assistance due for restructuring of cooperatives according to the recommendations of the Vaidyanathan Committee is also likely to be part of the package, officials say. Cooperatives and banks may also have to share a little burden in case of default loan accounts, which have been written off for prudential accounting norms.

Even as there were no easy ways of balancing high economic growth with low inflation, Finance Minister P. Chidambaram on Tuesday said the Government would strive to peg the overall growth rate at near nine per cent while containing the inflation rate at close to four per cent. In his post-Budget interaction with the Confederation of Indian Industry (CII) here, Mr. Chidambaram said: "The goal is to have a growth close to nine [per cent] and inflation close to four [per cent]. That is why we assume 13 per cent [nominal] GDP growth.' Pointing out that in this exercise, while the Government sometimes succeeded and also missed the target at other times, he said: "In a country where economy is growing close by over eight per cent, close to nine per cent, there is bound to be some inflation.' Inflation in India, he said, was caused by supply-demand mismatch between food items and the oligopolistic tendencies in some industries. Besides, the growth in money supply was yet another reason which, in a sense, was a reflection of the high growth the country was experiencing. However, to keep the India growth story intact, Mr. Chidambaram pointed to the numerous measures announced in the budget for 2008-09. "I think we have announced a number of measures that are intended to ensure that the growth story is intact... I am betting on your [corporates] growth. I am bullish on your growth. I hope you are as bullish as I am about the growth story,' he said. Projecting that India Inc. would provide Rs. 5,50,000 crore next year by way of taxes, excluding personal income-tax, Mr. Chidambaram noted that while steps had been taken to provide more money to the consumer for spending, the fiscal stimulus to the economy would come from the cuts in excise and customs duties and the Central Sales Tax. "Unless my friend Shubhashis Gangopadhyay [Adviser to Finance Minister] and other economists are hopelessly wrong about their economics, all these make up for the text-book prescription for higher growth,' he said. These measures together, including the across-the-board excise cut from 16 per cent to 14 per cent, were a powerful combination to keep the growth story intact. "I have taken the first step to signal the whole country, especially States, that I prepare to look forward in order to accommodate my financial interests with the final number [for goods and services tax], and you can prepare to accommodate your financial interests with the final number,' Mr Chidambaram said.

As the Union Government works out the exact details of the farm loan waiver announced in the Budget, the first concern has been raised by Punjab, which incidentally contributes 50 per cent of the tota